Neil Poynton: Recognising the power of platform investing

If there’s one common challenge that unites today’s charities, it’s the imperative to make their funds stretch further than ever before. With interest rates set to stay close to historic lows, and greater pressure to account to their donors for every penny they spend, charities are facing a perfect storm of challenges when it comes to making the most of their precious reserves. But now the third sector is increasingly recognising the power of investment platforms to help them tackle those challenges head on.

Since the global financial crisis, risk aversion has been wracking the investment world, sparking a wave of regulatory scrutiny and change across the spectrum of sectors. It has also driven charities keen to safeguard their hard-won funds to hold significant sums of money in cash. But far from proving a safer option, this conservative strategy has actually seen charities lose money in real terms.

The dual impact of low rates and inflation

Years of ultra-low interest rates, aggravated by the erosive impact of inflation, have conspired to generate negative returns on cash in real terms. Not only does this mean that charities who have kept their reserves in cash could have made a loss, but it has also forced some to tap into their reserves in order to make up shortfalls in their income.

With the UK’s economic backdrop continuing to improve, the Bank of England’s monetary policy committee (MPC) now appears to have embarked upon on a rate-rise cycle. But while the MPC and the market alike are expecting the future path of hikes to be both measured and gradual, interest rates still look very low relative to recent decades. And for charities, that means an ongoing battle to generate the sustainable, long-term returns they need from their reserves.

Retail investors have fuelled the meteoric rise of fund platforms

In this challenging investment environment, doing nothing is simply not an option for the trustee boards of charities that wish to maximise the power of their reserves by actively striving to increase their value. This shift in focus is leading an increasing number of boards to turn their attention to alternative solutions. The financial decisions that trustees make for their charity now matter more than ever. But with a huge range of funds on the market – and a plethora of ways to access them – knowing where to start is half the battle. This is where investment platforms can have a particularly compelling role to play.

For individual investors, platforms have long represented an accessible one-stop shop where investors can buy and sell investments like equities and bonds, as well as mutual funds and exchange-traded funds, in a single, online location – cutting out the need to deal direct with stockbrokers or with multiple fund managers. In addition, most fund platforms also offer investors access to company-specific information, in-depth research capabilities and easy-tomanage online trading tools.

As platform technology has evolved, this route to investing has become increasingly accessible. This has in turn driven a sharp rise in the number of online execution-only investment platforms, created fierce competition among the leading online players, and – crucially – brought down the cost of investing for the man on the street.

Charity investors are starting to catch up with their retail counterparts

Retail investors have been quick to realise some of the benefits that can come with the platform approach to investing: convenient access to a wide selection of funds, greater flexibility, lower costs and easier performance monitoring. Yet charity investors have historically been significantly behind the curve when it comes to platform investing, partly due to lingering misconceptions that they could prove complex, costly and time-consuming to manage. Crucially, they also need dual-authorisation functionality – a feature that the majority of platforms lack.

The tide is now turning – slowly, but surely. With many charities recognising that the precious time and resource that they spend on manually managing their investments could be better spent in fulfilling their mission, a growing number are now capitalising on the power of platforms to help them manage their investments easily, safely and cost-effectively. If you’re considering investing for your charity for the first time, or simply bringing your existing investments together in one safe online location, platform investing is something you should seriously consider.